7 days

7 Days is a weekly round up of developments in pensions, normally published on Monday afternoons. We collate this information from key industry sources, such as the DWP, HMRC and TPR.

In this 7 Days

Consultation: Trustee oversight of investment consultants and fiduciary managers

On 29 July 2019, the DWP issued a consultation on the draft Occupational Pension Schemes (Governance and Registration) (Amendment) Regulations 2019. The regulations, which are intended to integrate an order produced by the CMA into pensions law, will:

  • require trustees of occupational pension schemes, subject to certain limited exceptions, to carry out a tender process for fiduciary management services and set objectives for their investment consultants
  • allow TPR to oversee the requirements.

The consultation closes on 2 September 2019.

On 31 July 2019, TPR issued a consultation on related guidance for trustees.

For further details please see our Alert.

FCA publishes policy statement on remedies from Retirement Outcomes Review

On 30 July 2019, the FCA published a policy statement summarising the feedback it received to its second consultation on remedies from the Retirement Outcomes Review, and setting out final rules and guidance on:

  • introducing “investment pathways” for consumers entering drawdown without taking advice
  • ensuring that consumers entering drawdown invest predominantly in cash only if they take an active decision to do so
  • giving consumers in decumulation annual information on all the costs and charges they have paid.

The changes will come into force on 1 August 2020.

FCA consults on measures to change how advisers manage and deliver pension transfer advice

Since the introduction of the retirement flexibilities in 2015, significant numbers of DB scheme members have transferred to DC schemes. In the FCA’s view, given the advantages of DB pensions, the proportion of consumers advised to transfer is too high and many of these transfers will not have been in consumers’ best interests.

On 30 July 2019, the FCA published a consultation on a package of measures aimed at changing how advisers manage and deliver pension transfer advice, particularly for DB to DC transfers, and reducing the number of consumers transferring when it is not in their best interests. The FCA’s proposals include:

  • reducing the scope for conflicts of interest by banning contingent adviser charges and limiting firms’ ability to recommend transfers that incur unnecessarily high ongoing adviser and product charges
  • empowering consumers to make better decisions by improving how charges are disclosed, and requiring checks on consumers’ understanding as part of the advice process.

The consultation closes on 30 October 2019.

HMRC issues pension schemes newsletter 112

On 31 July 2019, HMRC issued pension schemes newsletter 112. It provides information on:

  • relief at source
  • retirement flexibility statistics
  • the AA
  • TPR’s consultation on the future of pension trusteeship and governance (see 7 Days)
  • QROPS transfer statistics.

HMRC publishes Countdown Bulletin 47

HMRC’s Countdown Bulletins provide pension scheme administrators with updates about the end of contracting-out. On 30 July 2019, HMRC published bulletin 47. It includes information on:

  • the Scheme Financial billing exercise
  • the Scheme Financial refund exercise
  • returned cheques.

IA sets out detail of Long-Term Asset Fund

On 31 July 2019, the IA set out the detail of how the proposed Long-Term Asset Fund is intended to help widen access to more illiquid assets, opening up investment opportunities for a range of customers, particularly those saving in DC schemes.

The fund would use an adapted version of a Non UCITS Retail Scheme (“NURS”) to create a new category of fund that will have three key features:

  • the ability to invest widely in private markets, funding companies and wider projects, including public infrastructure and housing
  • to allow redemptions to be structured to reflect the time it takes to sell these investments
  • to build on the high standards of customer protection already present in NURS.

The proposal forms part of a package of measures submitted to HMT as part of the work of the Asset Management Taskforce, which brings together industry figures and Government officials to tackle issues facing the industry.

TPR: New figures “show why small schemes must quit the market”

On 1 August 2019, TPR published its annual DC survey report. According to TPR, the research “shows the unacceptable scale of under-performance in small pension schemes, highlighting why they must improve or leave the market to protect savers”.

Key findings include:

  • almost three-quarters of savers (71%) are in schemes which are meeting all the expected governance standards, an increase from 54% in 2018 and 32% in 2017
  • most smaller schemes fail to meet standards of governance and trusteeship, with only 4% of micro schemes (which have between 2 and 11 members) and 1% of small schemes (with 12 to 99 members) meeting all the governance standards
  • only 20% of schemes take climate change into account when considering their investment approach. From October 2019, every SIP must include the trustees’ policies on how they consider ESG factors, which includes climate change, in their investment strategy
  • two-thirds of trustees directly contacted by TPR went on to spend more time on a scheme’s governance and administration. TPR’s regulatory initiatives are working to contact more small schemes with a more directive style of communication, clarifying priorities and providing “simple steps” for complying with the fundamentals of good governance
  • three-quarters of schemes reported they have more than half of the cyber security controls expected by TPR in place.

WPC Report on Pension Costs Transparency

The Work and Pensions Select Committee has published a report on pension costs and transparency. It makes several recommendations, including that:

  • the DWP review the level and scope of the charge cap, as well as permitted charging structures, in 2020. The review should consider preventing flat fee charging structures being applied to dormant pension pots, and revisit measures to proactively consolidate smaller pots
  • the Government bring forward legislation to make the Cost Transparency Initiative’s disclosure templates (see 7 Days) mandatory for both DB and DC schemes
  • to avoid poor quality and untimely data, the disclosure templates be supported by an independent verification process
  • the Government review the initial impact of requiring occupational DC schemes to publish their assessment of value for members in 2020. The review should assess whether this requirement leads to better scheme focus on achieving value for money and better communication with scheme members about value for money
  • the Government now take a leading role in ensuring that schemes adequately prepare their data ahead of the launch of the pensions dashboards
  • by the end of 2019 the Government publish a timetable for the rollout of a non-commercial pensions dashboard
  • individuals should only be able to opt out of guidance through an active decision communicated to an impartial body, such as the Money and Pensions Service
  • for any transaction to be deemed valid, the relevant upfront costs and any further charges be detailed on the front page of the product, and the investor be required to sign that they are aware of those charges and have agreed to them
  • a 0.75% charge cap be set from the outset on decumulation products available through FCA decumulation pathways
  • the FCA’s list of unauthorised firms be expanded into a widely publicised database. This database should be regularly updated by those organisations involved in policing pension scams, and act as a co-ordinated early warning system
  • the Government resolve the discrepancy between net pay and relief at source tax relief arrangements as a matter of urgency.

Corsham v Police and Crime Commissioner for Essex; Hazell v Chief Constable of Avon and Somerset (High Court, 11 July 2019)

A police authority has been held to be liable for negligent misstatement for informing retiring officers that their lump sums would be tax free despite knowing that the officers’ immediate reemployment would have adverse tax consequences.

For further details, please see our case report.